DoD Won’t Contract With a Company if its Employees Can’t Spill the Beans

DoD Won’t Contract With a Company if its Employees Can’t Spill the Beans

About the same time that Congress was passing a budget to avoid a government shutdown, the Department of Defense (“DoD”) signed Class Deviation 2016-O0003,1 on Oct. 29, 2015. It is effective immediately and creates new clauses DFARS 252.203-7996 and 252.203-7997.

Class Deviation 2016-O0003

The purpose of the policy is to prohibit contractors from requiring employees to sign or abide by internal confidentiality agreements that would prohibit them from reporting “waste, fraud, or abuse to a designated investigative or law enforcement representative of a Federal department or agency authorized to receive such information.”2 The policy will affect all contracts funded by the Continuing Appropriations Act, 2016, (Pub. L. 114-53) “or any other FY 2016 appropriations act that extends to FY 2016 funds with the same restrictions.”

The Class Deviation identifies two clauses designed to enact this policy. DFARS 252.203-7996, Prohibition on Contracting with Entities that Require Certain Internal Confidentiality Agreements – Representation, states that by submitting an offer, an offeror is representing to the DoD that it does not require employees or subcontractors to sign or comply with internal confidentiality statements. DFARS 252.203-7997, Prohibition on Contracting with Entities that Require Certain Internal Confidentiality Agreements, requires contractors to notify employees that the prohibitions or restrictions of such agreements are no longer in effect. This provision also allows the DoD to “seek any available remedies” for a contractor’s failure to “perform in accordance with the terms and conditions of the contract as a result of Government action under this clause.” Id. The Class Deviation also states that contracts entered into on or after Oct. 1, 2015, should be modified, to the extent possible, to include DFARS 252.203-7997, including contracts for commercial items. These two DFARS clauses mirror DFARS 252.203-7998 and 7999, which were issued in a previous Class Deviation in February 2015 to accomplish the same objective.

Background

After reviewing the 30 government contractors with the agency’s largest dollar-value contracts awarded in 20123, the Department of State issued a report in early 2015 that found all had confidentiality policies or agreements, 13 of the 30 had policies that required employees to notify the company if they were contacted by a government agent, and five of the 30 had agreements containing non-disparagement clauses that could stifle reporting fraud, waste and abuse by employees. According to the Department of State report, this concern was prompted by a series of newspaper articles in 2014. Congress decided to put a stop to it, but folding the prohibitions contained in the appropriations acts into the FAR has lagged. Not so for the Department of Defense.

Action

Companies that contract with the DoD should 1) determine whether these clauses apply; 2) consider whether their internal confidentiality agreements would be covered by the clauses; and, if the answers to both 1 and 2 are yes, 3) notify employees that covered agreements are no longer in effect. Companies with contracts issued between Oct. 1, 2015, and Oct. 29, 2015, should expect to receive unilateral modifications to those contracts to add these clauses.

As a practical matter, contractors should re-evaluate any policies or confidentiality agreements that their employees sign and determine to what extent, if any, the wording could be understood to discourage employees from reporting "waste, fraud or abuse" to the government. For many reasons, employers would prefer to encourage their employees to report waste, fraud or abuse to management directly or via anonymous hotlines, e.g., to give the employer an opportunity to conduct its own internal investigations and make any required disclosures to the government before the government learns the same information from any other source. But, employers should consider whether such policies or agreements are still acceptable or run afoul of the DoD's prohibitions.

1A ‘Class Deviation’ is essentially any clause published in any FAR supplement that somehow “deviates” from the FAR, in this case the Department of Defense supplement to the FAR. See FAR 1.401.